• 0 Vote(s) - 0 Average
  • 1
  • 2
  • 3
  • 4
  • 5

What to do with $500K?

#1
I inherited an IRA with $500K in cash and I am torn about how to invest it.  I'd like to end up with this extra money in a somewhat conservative, diversified portfolio.  But how do I get from A to B?  I am uncomfortable jumping into the stock market right now after such a long run and with all the talk of imminent/inevitable correction.   And with interest rates going up, maybe bonds aren't exactly the best buy right now either.  I am thinking to buy a CD ladder and then dollar-cost-average my way in to stock and bond mutual funds over the next year.  Is there a better way?  What would you do? 
  Reply
#2
Nice quandary to have at several levels.
It raises more questions than conclusions.
What do you want to do with this inherited IRA in terms of Growth or Dividends.
When and how much do you need to take annually as MRD's?
Mr Market and Mr Bonds both have potential drawbacks right now, I agree.
If you started with a CD ladder, how long would you take to be fully invested?
The Longest Bull still has a lot of support with some valuations, the S&P is an example.
It wouldn't take long for earnings growth to deteriorate OTOH.
Personally, I'm totally avoiding Bonds and Bond Funds so I wouldn't recommend them.
I'm sure a more authoritative voice will come along to tell you exactly what to do.
I'm thinking you have some ideas of your own after you answer those other questions.
Sympathies and Congrats on the Inheritance.
Let us know how you deal with it.
  Reply
#3
Without knowing more about your circumstances it is almost impossible to point you in the right direction.  If you are 20 years old, maybe 100% equities right away is OK.  If you are retired, maybe there is a different answer. And, if you own other assets, the answer may again be different.
 
I would start from the top down. 
 
(1) Decide what your (age/life-appropriate) target asset allocation is going to be for ALL of your investments.
(2) Migrate to that target asset allocation tax-efficiently over time. Things can generally be moved around in an IRA without triggering taxes.

 (3) Try to invest tax-efficiently.  For example, whatever will grow the most (growth stocks?) might be in a Roth. Whatever is throwing off taxable ordinary income should be in an IRA. etc.
(4) If you are concerned about making a big move (e.g., into equities), then make the move over 6-12 months.  If the market moves up, be glad you did some of it early.  If the market moves down, be glad you did not do it all at once.
  Reply
#4
ProudFoot,

So your RMD is ~$10K range (just a guess at your life expectancy)
 
Sure, lock up $100K in a CD, or CD ladder. Buy some bonds (not bond fund), or bond ladder, $100K. $100-200K in a good money market account. Still leaves $100K to ease a little into the market.
  Reply
#5
The bull market will continue until it doesn’t- but we are in the 7th or 8th inning. I suggest a CD ladder of 6 month, one year, 18 month, and 2 year CDS. If we see a downturn in the next few months take the funds from the 6 month CD and invest in equities.

as people always say, just my humble opinion!
  Reply
#6
I'm 57 so my RMD will be around $17K/yr. I retired several years ago, live comfortably on a pension and have substantial other assets. I have quite a bit of money in my own IRA and Roth IRA. I was an aggressive investor in my younger (working) years but swung very conservative after retirement until I was sure how things would go. Now I am more comfortable with some risk, but the timing for this investment is what seems worrisome to me. If it was late 2009 and not late 2018, it would be different.
  Reply
#7
The bull market will continue until it doesn’t- but we are in the 7th or 8th inning. I suggest a CD ladder of 6 month, one year, 18 month, and 2 year CDS. If we see a downturn in the next few months take the funds from the 6 month CD and invest in equities.

as people always say, just my humble opinion!
  Reply
#8
I agree with Yberp and his suggestions of a CD ladder. It's a great way to park funds or as an alternative to bonds in rising rate environment. Diversification is my motto and one can always take small positions in ETFs that represent the S&P 500 so that you get expose to a wide variety of quality companies in a single ETF or say in a sector that interests you instead of a single stock bet. The CD purchasing is really easy in Fidelity and offer quite a few ETFs of all stripes, commission free.  There are many good, interesting suggestions by others in this board to consider too.
  Reply
#9
Most people will present just a couple of options. Jump in all at once... and accept the risk that the next big crash will happen the next day or two, or dollar cost average, in which case you keep your money in a savings account and move it bit by bit into "real" investments, thus possibly missing the biggest rise in the past 100 years.
 
My approach is simple and better than both of those options, in my opinion. Simply put all of your money immediately into a top rated conservative fund. AND place two scheduled orders:
Every month, move 20% from the conservative fund into an broad index fund until funds are exhausted.
Every 6 weeks, move 15% from the broad index fund to a top-rated large cap growth fund until funds are exhausted.
 
My idea of a conservative, broad index and top rated large cap fund are as follows, but feel free to choose your own, just compare YTD, and 1, 3, 5, 10 year performance first.

Conservative: VWINX
Broad Index: ITOT, SPY, FZROX
Large Cap Growth: TRBCX, FBGRX
  Reply
#10
Ha! That is a very interesting suggestion. I was hoping for some outside-the-box thinking and I believe that qualifies.
  Reply


Forum Jump:


Users browsing this thread: 1 Guest(s)